Percy's Ghost Engine was in a story that Percy told Thomas and Toby, which his driver told him the night before. The story stated that the ghost steam train fell to its doom in a ravine where a viaduct was going to be built, and its ghost continues to run every year on the anniversary of the accident as a warning to others. However, Thomas refused to believe him and Percy's driver confirmed to him that the ghost was on television. Percy could not help but feel disappointed.
When Percy crashed into a cart of lime, a signalman remarked that Percy looked like a ghost. This gave Percy an idea to scare Thomas. With the help of Toby, they convince Thomas that Percy had crashed and returned as a ghost, thus scaring Thomas out of the shed. Later, Toby jokingly told Percy that Thomas had seen a ghost.